When Does Overtime Become a Contractual Obligation for Employers?

Understanding the legalities will help you implement fair and compliant overtime policies.

James Rowland

Commercial Director James leads Account Management, Sales and Marketing at Neathouse Partners.

Date

24 October 2023

Updated

22 May 2024
4 min read
When Does Overtime Become a Contractual Obligation for Employers?
8:01

As a UK employer, you may rely on your team to work overtime during busy periods or to meet deadlines. However, you need to be aware of when overtime takes on a contractual nature, as this can impact your obligations around pay, leave entitlements and more.

Understanding the legalities will help you implement fair and compliant overtime policies.

 

Defining Overtime

Overtime refers to any hours worked by an employee beyond their normal contracted hours.

The key point is that overtime involves extra time worked, not just enhanced pay. For example, an employee on a 37.5-hour contract who works 40 hours has done 2.5 hours of overtime.

 

When Overtime Becomes Contractual

Overtime takes on a contractual nature when the extra hours become a regular and established part of an employee's role. This obligates the employee to work overtime when required.

The following examples can demonstrate a contractual expectation of overtime:

  • Consistent overtime over an extended period, for example, 12 months
  • Overtime is described as required in the employment contract
  • Reliance on overtime to fulfil the duties of the role
  • Overtime is presented as compulsory during recruitment
  • Threats of disciplinary action for refusing overtime
  • No opt-out agreement is in place (see below)

As an employer, contractual overtime requires you to pay enhanced overtime rates for the extra hours worked. You also cannot unreasonably remove overtime from an employee without consultation or compensation.

 

The 48 Hour Week Opt-Out

Under the Working Time Regulations, employees cannot legally be required to work more than an average of 48 hours per week over a 17-week period.

The only exception is if they have voluntarily signed an agreement opting out of the 48-hour limit.

This opt-out agreement must be done in writing for each new job. It can be for a fixed period or indefinite. However, employees can still revoke their opt-out by giving proper notice, normally between 7-30 days.

As an employer, you should not pressure staff into signing the opt-out. Doing so could potentially lead to claims of coercion.

It is also advisable to periodically review long-term opt-out agreements to ensure the employee still consents.

You should also take care that excessive overtime beyond 48 hours does not damage an employee's health or result in fatigue-related accidents.

Research shows that regularly working over 55 hours per week dramatically increases the risk of stroke, heart disease and depression.

While opt-outs provide flexibility, it is wise to develop an overtime culture that focuses on work-life balance and employee wellbeing. Some options include:

  • Having employees re-confirm opt-out annually
  • Setting overtime limits in company policy
  • Providing compensatory rest breaks
  • Monitoring overtime levels to identify excessive hours

Getting opt-out agreements right is vital to stay on the right side of the law.

Consult with experts like our team to ensure your overtime policies balance employee rights with operational needs.

 

Reasonable Overtime Expectations

There is no fixed legal definition of what constitutes "reasonable" overtime. It depends on factors like the employee's role, personal circumstances, sector norms, and provisions in employment contracts.

As a rule of thumb, over time that leads to fatigue, burnout or work-life imbalance would likely be considered unreasonable. Seek HR guidance when setting overtime policies to ensure you establish expectations that are fair and realistic for your team.

 

Refusing Non-Contractual Overtime

Employees can generally refuse overtime that is not contractual. However, consistent refusal of voluntary overtime that colleagues undertake may damage perceptions of teamwork and reliability.

Have clear policies around voluntary overtime and address any issues through performance management. Ensure managers understand the policies to avoid unlawful disciplinary action.

 

Dismissal and Overtime Refusal

It would be extremely rare and high risk for an employer to dismiss an employee solely for refusing non-contractual overtime.

This could potentially result in an unfair dismissal claim. Always follow proper disciplinary procedures and seek legal advice before considering dismissal. Understand the nature of the overtime and the reasons for refusal.

 

Calculating Overtime Pay

Employment contracts should specify overtime pay rates, which can match basic pay or be set at a higher premium rate.

Failure to pay correctly for overtime worked is a breach of contract and unlawful under National Minimum Wage laws. Seek payroll guidance when setting overtime pay policies to ensure compliance and fairness.

 

Unpaid Overtime

Requiring employees to do unpaid overtime is generally prohibited and high risk. Even salaried staff have minimum wage protections based on total hours worked.

Unpaid overtime should only ever be on a voluntary basis. Make sure managers understand they cannot demand unpaid overtime.

 

Overtime and Holiday Pay

Guaranteed and regular contractual overtime must be included when calculating holiday pay, as established in cases like Bear Scotland v Fulton.

This applies to the full 5.6 weeks of statutory leave. Failing to account for overtime could open employers to claims of unlawful deduction of wages.

 

Pension Contributions and Overtime

Whether overtime hours are pensionable depends on the rules of an employer's specific pension scheme. Often only basic pay is pensionable, excluding overtime.

However, some schemes may allow staff to make voluntary additional pension contributions from overtime earnings if they wish.

 

Developing Clear, Fair Overtime Policies

Developing Clear, Fair Overtime Policies

As an employer, you walk a fine line between making reasonable overtime requests and placing unlawful pressure on employees. Poorly managed overtime can easily lead to friction, burnout and legal issues.

To develop fair, compliant overtime policies:

  • Consult with HR and legal experts to review draft policies
  • Clearly define when overtime is voluntary vs. contractual
  • Outline the notice periods required for mandatory overtime
  • Specify overtime pay rates and how they are calculated
  • Establish procedures for authorising and recording overtime
  • Ensure overtime policies comply with regulations like the Working Time Regulations
  • Avoid unrealistic overtime expectations that could be deemed unreasonable
  • Provide opt-out agreements where required and outline procedures
  • Establish grievance procedures for overtime disputes
  • Train managers on overtime policies and avoid coercion
  • Monitor overtime levels across the organisation
  • Regularly review overtime arrangements to identify problems
  • Seek periodic feedback from employees on overtime issues

With clear procedures understood by all, overtime can be managed effectively. Employees are more likely to cooperate when policies are transparent and fair. This minimises grievances, absences and turnover while protecting your reputation.

 

How Can Neathouse Partners Help?

With decades of combined employment law and HR experience, Neathouse Partners can provide practical guidance on overtime issues and ensure that you get your overtime policies right.

We can review your approach and highlight any legal risks or improvements needed. Our HR consultants will also train your managers on implementing overtime procedures consistently across the business.

View our employment contracts services. 

Get in touch today to find out more about our services. We're here to simplify employment law so you can focus on your business.

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